Slack can make the stretch
A low cash-burn rate gives firm plenty of time
It is unclear why Slack Technologies is choosing to forgo a traditional initial public offering. What is clear is that the corporate-communications platform doesn’t need the money.
Unlike Pinterest, Zoom Video and Lyft—the three most recent technology companies valued at over $1 billion to go public—Slack is pursuing a direct listing over a formal IPO. In choosing this path, which cuts out middlemen by offering only existing shares directly onto a stock exchange, Slack will save a small fortune in investment-banking fees that its peers have shelled out. But it also will cede the jackpot of cash an IPO typically generates. Fellow unicorn Uber Technologies, for instance, could raise as much as $9 billion (U.S.) with its own offering, expected some time next month.
Slack doesn’t need the big score, though. In its first filing made public Friday, the company revealed about $841 million in cash on hand, which would last more than 81/2 years at its current burn rate. Uber has a much larger war chest of about $6.4 billion, but that would last the ride-hailing giant only a little over three years at its current burn rate. Lyft had a little over five years worth of cash on hand prior to its IPO last month.
Lyft and Uber are spending furiously to compete heavily against one another for U.S. market share.
Despite its healthier rate of cash consumption, though, Slack’s outlays are hardly insignificant. The company spent 58% of its revenue on sales and marketing in fiscal 2019, down slightly from 64% the previous year. Furthermore, its path to profitability is still uncertain; the company actually lost more money in fiscal 2019 than in the year before. Its loss narrowed slightly over the past two years. The company said in its filing it plans to increase operating expenses going forward.
But Slack is at least getting some bang for its buck. Zoom, whose red-hot stock is still about 86% above its IPO price from mid-April, spent 56% of its revenue in 2018 on marketing, but its sales are still well behind Slack’s. Slack also is landing the larger accounts that are key to surviving in corporate tech.
About 40% of the company’s revenue comes from customers
paying $100,000 or more compared with about 30% for Zoom.
Even when it comes to its shares’ performance, Slack’s direct listing isn’t a surefire path to success.
Spotify Technology took a similar route last April, and its shares
are still about 7% below its firstday close. But Slack’s corporatetech business model has a much more solid footing than music streaming.
It also helps that the company can pay its own way for some time to come.